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HomeMy WebLinkAboutResolutions - No. 2017-219RESOLUTION NO. 2017-219 A RESOLUTION OF THE LODI CITY COUNCIL APPROVING A PENSION STABILIZATION POLICY WHEREAS, the City of Lodi contracts with the California Public Employee Retirement System (CaIPERS) to provide defined benefit pension services to the employees and retirees of the City of Lodi; and WHEREAS, the City of Lodi is responsible for making regular contributions to CaIPERS for service credit earned (normal cost) and for unfunded accrued liabilities (UAL); and WHEREAS, annually CaIPERS calculates the City's funded status and provides the City with payroll contribution rates for the normal cost and flat dollar amounts for the UAL payment for the upcoming fiscal year (the Actuarial Reports); and WHEREAS, the most recent Actuarial Reports as of June 30, 2106, for both the City's Safety employees and Miscellaneous employees showed funded statuses of 58.4% and 68.4%, respectively, and a combined funding status of 63.4%; and WHEREAS, at an assumed earnings rate (Discount Rate) of 7.357% this represents an UAL value of $74,281,718 and $56,549,380, respectively; and WHEREAS, CaIPERS has previously authorized a phased in reduction of the Discount Rate to 7.0%, an action which will increase the normal cost rate, the annual required UAL payment and the aggregate UAL for both plans; and WHEREAS, the City Council is committed to providing a high level of public services to its citizens, including Police, Fire, Parks, Recreation and Cultural Services and Library; and WHEREAS, a failure to act to address precipitously rising pension costs impedes the City's ability to retain current service levels; and WHEREAS, dedicating annual budget savings to higher potential return investments with PARS is the best financial tool available to provide resources to fund rising pension costs, with the alternative being service level cuts; and WHEREAS, employees and retirees from agencies that are unable to pay their CaIPERS obligations risk having their benefits drastically reduced based on the current funded status of the respective plan; and WHEREAS, based on the hypothetical termination liability shown in the Actuarial Reports, Safety employees could expect a pension reduction of between 64.8% and 69.8% or greater and Miscellaneous employees could expect a pension reduction of between 57.1% and 63.1 % or greater based on the plans current funded status; and WHEREAS, the City Council desires to preserve the pension benefits of existing employees and retirees; and WHEREAS, the City Council desires to attract the best employees and retain a high quality work force; and WHEREAS, a Pension Stabilization Policy serves as both a financial tool to assist in improving the City's current funded status as well as a recruitment and retention tool to provide assurance to current and potential future employees that the City is responsibly addressing current liabilities and working to honor previous commitments; and WHEREAS, the City Council recognizes it is in the City's best interest to continue funding CaIPERS to maintain healthy labor-management relations by preserving the earned benefits of employees. NOW THEREFORE BE IT RESOLVED that the City Council of the City of Lodi hereby: 1) Authorizes the Treasurer to invest all fund balance in excess of 16% in the General Fund (Pension Stabilization Resources, or PSR), based on the City's Comprehensive Annual Financial Report (CAFR) from the previous year in the City's Internal Revenue Code Section 115 Trust account with Public Agency Retirement Solutions (PARS); and with Council consent use PARS trust funds to make: a. Additional Discretionary Payments (ADP) to the Safety Plan of the City of Lodi held by CaIPERS; or b. ADP to the Miscellaneous Plan of the City of Lodi held by CaIPERS; until such time that the combined Market Value of Assets at the two CaIPERS Plans plus the Market Value of Assets in the PARS fund exceed 80% of the combined "Entry Age Normal Accrued Liability" for both Safety and Miscellaneous or its most proximate equivalent as calculated by CaIPERS in the annual Actuarial Reports. 2) Requires that PSR investments made under Section 1 be accounted for by source fund and be made from all source funds in equal proportions to the actual allocation of CaIPERS combined normal cost plus UAL cost within the Fiscal Year of the most recently approved CAFR. a. The base fund for determining the amount of proportional PSR for other funds shall be the City's General Fund (Fund 100). i. If PSR for a particular fund is not adequate to cover the proportional requirement for that fund, the Treasurer shall prepare a report and recommendations to City Council to seek direction on PSR for that Fiscal Year. b. Nothing in this policy shall allow the Treasurer to make PSR investments of any fund to have a projected year end fund balance below thresholds established in Section 7, 8, 9, or 10, of the "City of Lodi Budget and Fiscal Policies" (Fiscal Policies) adopted by the City Council on October 19, 2016, or any succeeding similar policy. Fiscal Policies are incorporated herein for reference as Exhibit A. i. If proportional PSR investments would cause the projected year end fund balance of any fund to fall below thresholds established in the Fiscal Policies, the Treasurer shall prepare a report and recommendations to City Council within the scope of Fiscal Policies. 3) Authorizes this policy to go into effect immediately upon adoption of this Resolution anticipating the Fiscal Year 2016/17 CAFR (for Audited Ending Fund Balances) the first document to be reviewed by the Treasurer to make Pension Stabilization investments. 4) Authorizes the City Manager to make any necessary budget adjustments to execute this policy in each Fiscal Year based on the calculated PSR. 5) Requires the Treasurer to prepare and the City Manager to present funded statuses of the City's combined pension plans in the Annual Budget and the Mid -Year Budget report. Dated: December 6, 2017 I hereby certify that Resolution No. 2017-219 was passed and adopted by the City Council of the City of Lodi in a regular meeting held December 6, 2017, by the following vote: AYES: COUNCIL MEMBERS — Chandler, Johnson, Mounce, Nakanishi, and Mayor Kuehne NOES: COUNCIL MEMBERS — None ABSENT: COUNCIL MEMBERS — None ABSTAIN' COUNCIL MEMBERS — None 2017-219 rn, NIFER FERRAIOLO ity Clerk EXHIBIT A City of Lodi Budget and Fiscal Policies Adopted October 19, 2016 1. Purpose The City's primary financial objective is to maintain the fiscal stability of the organization. The purpose of this policy is to establish guidelines for budget development, administration, and management as well as outline the City's fiscal policies in regard to cost recovery of various programs, target reserve levels in all funds and funding mechanisms for various programs. 2. Budget Development The budget will reflect the goals and priorities of the Council each year and make the best use of available funding within those goals and priorities. While goals and priorities may change from year to year, some basic tenets will apply to all budgets. Those tenets are reflected below. A. The General Fund budget will be balanced each year, without the use of reserves. Current year revenues will support current year expenditures. B. One-time revenue will be used to fund one-time expenditures or be placed in reserves. One-time revenue will not be used to fund on-going operations. C. Annual budgetary savings will be used to fund one-time expenditures or be placed in reserves. D. Funding for the Vehicle Replacement Fund shall be based upon annual depreciation schedules for vehicles and amounts will be reflected in departmental budgets. E. Funding for the Other Post -Employment Benefits (OPEB) Fund shall be based upon the Actuarial Required Contribution shown in the actuarial report and charged to fund based upon ratio of full time positions. F. Funding for the Pension Stabilization Fund shall be based upon the ratio of annual budgeted pension costs by fund. G. Funding for the Information Technology (IT) Replacement Fund shall be based upon the replacement cycle for equipment contained in the fund. 2 H. Budgetary allotments for OPEB, Pension Stabilization and IT Replacement shall be reflected in the Non -Departmental Organization Unit for all General Fund units. a. Special Revenue, Enterprise and Internal Service funds will reflect budgetary allotments for these items within their respective funds. I. Fixed Assets a. Capital purchases of $10,000 or more, with a three year useful life, will be capitalized. b. Infrastructure additions or new construction of $10,000 or more will be capitalized. c. Vehicle purchases of any amount will be capitalized and useful lives will be determined based upon the Government Finance Officers Association Best Practices guidelines. d. Straight line depreciation will be used for all depreciable assets. J. Library a. The Library is primarily funded through a transfer from the General Fund. Council will set the level of funding each year based upon available General Fund revenue. K. Parks, Recreation and Cultural Services (PRCS) a. Recreation and Community Center Programs i. The goal is to recover, on average, 40% of program costs from participants. Individual programs may be fully self-supporting while other programs may have a nominal cost recovery ratio. b. General Fund Transfer i. The General Fund Transfer shall be determined by Council each year. The intent of the General Fund Transfer is to cover the costs associated with Parks Maintenance, PRCS administration, Debt Service and Hutchins Street Square Maintenance. 3 L. Community Development a. The Community Development Department should primarily be self- supporting through fee revenue. b. A General Fund Transfer, determined by Council each year, will be designed to support the value of the general information function that the department provides and support at least one-half of the costs associated with a Youth Outreach function designed to divert youth involvement in gang activities. M. Enterprise Funds a. Enterprise funds will set fees and rates at levels that meet operating, debt service, capital and reserve needs. N. Internal Service Funds a. Internal Service funds will set rates and charges at levels that will ensure full recovery of costs each year. 3. Budget Administration and Adjustment The City Council is ultimately responsible to the public for the delivery and conduct of City services and facilities. Accordingly, the Council appropriates funds to ensure the delivery of services at the levels and in the priority established by Council. The legal level of budgetary control is at the department level. A. City Manager 'The City Manager, as the chief administrative officer, provides staff with general direction in the development and formulation of the City Manager's budget recommendations to Council. This includes: evaluating and assessing current and anticipated issues facing the City; determining the demand for services and facilities; identifying the concerns of the citizenry; assessing the current and projected financial condition of the City; and determining the final staffing recommendations. B. Deputy City Manager/I.nternal Services Director The Deputy City Manager/Internal Services Director, as the chief financial officer, is responsible for budget development and day-to-day administration of adopted budgets. This includes: developing and issuing the budget instructions and calendar; advising the City Manager on budget policies and issues, including 4 the recommended level of funding for each department within the General Fund; reviewing budget requests to ensure they are complete and accurate; preparing the preliminary budget recommendations for review by the City Manager; and publishing the approved budget, Capital Improvement Plan, and Budget in Brief documents. C. Department Directors Department directors are responsible for preparing their operating and capital budget requests in accordance with the City's budget instructions and managing their respective departments within their approved budget allotments. D. Failure to Adopt a Budget If the City fails to adopt the budget by July 1, the City Council may elect one of the following courses of action until passage of a budget and appropriation of funds: (1) Provide the City Manager with Continuing Resolution Authority to allow continued services at expenditure levels not greater than those in the prior year budget; or (2) Require staff to obtain prior approval for any expenditure (payment) of City funds. E. Public Record The budget document will be available on-line at the City's website (www.lodi.gov). Hard copies will be available for public review at the Lodi Public Library, City Hall and the Carnegie Forum. F. Budget Adjustments a. City Council approval is required for any increase in appropriations. b. The City Manager and Deputy City Manager have the authority to adjust appropriations within a fund, so long as total appropriations within the fund do not increase. c. Department directors have the authority to adjust appropriations within their departmental funds, so long as total appropriations within the departmental funds do not increase. 5 4. Appropriation Limit The Council will annually adopt a resolution establishing its appropriation limit calculated in accordance with Article XIIIB of the Constitution of the State of California, Section 7900 of the State of California Government Code, and any other voter -approved amendments or state legislation that affect the City's appropriation limit. 5. Components of Fund Balance A. Governmental Accounting Standards Board Statement Number 54 — Fund Balance Reporting and Governmental Fund Type Definitions outlines the requirements to report fund balance for governmental funds in specific classifications which create a hierarchy primarily based upon the extent to which a City is bound to constraints on the specific purposes for which the funds can be spent. Fund Balance consists of the following five categories: i. Non -spendable fund balance: amounts that cannot be spent because they are either (a) not in a spendable form (e.g., inventories or pre-paids) or (b) legally or contractually required to be maintained intact (e.g., endowment). ii. Restricted fund balance: amounts that can only be spent for the specific purposes stipulated by external resource providers either constitutionally or through enabling legislation (e.g., grants, gas tax, impact fees). iii. Committed fund balance: amounts that can be used for the specific purposes determined by formal action of the government's highest level of decision making authority. Committed fund balance can be changed only by the government taking the same formal action that initially created the commitment. (e.g., Council approved catastrophic or economic reserves). iv. Assigned fund balance: amounts that are intended to be used by the government for specific purposes. Intent can be established by either the governing body or delegated to a City official. (e.g., amount of unassigned fund balance intended to be used to pay for future salary and benefit increases). v. Unassigned fund balance: the remaining amount of fund balance after all other fund balance classifications are accounted for and can be either positive or negative. Positive unassigned fund balance is available for any purpose. 6 6. Fund Balance Policies A. Committing Fund Balance 1. The City Council is the City's highest level of decision making authority and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution or ordinance approved by the City Council at a City Council meeting. For reporting purposes, the resolution or ordinance approving, modifying or rescinding a fund balance commitment must be approved prior to the last day of the fiscal year for which the commitment is to be reported. The amount of the commitment may be determined in a subsequent period. B. Assigning Fund Balance i. The City Council retains the authority to assign fund balance. C. Hierarchy of Fund Balance Use i. When multiple categories of fund balance are available for expenditure, the City will spend the most restrictive funds first before moving down to the next category with available funds in the following order: 1. Restricted 2. Committed 3. Assigned 4. Unassigned. 7. General Fund Reserves Maintaining reserves in the General Fund is critical to the successful and stable short- and long-term operations of the City. Adequate reserves in the General Fund ensure that the City is able to respond to emergencies and continue providing services to the citizens of Lodi. Adequate reserves also ensure that the City will have sufficient funds available to meet its operating, capital and debt service obligations. A. Catastrophic Reserve i. A Catastrophic Reserve is established within the General Fund. This reserve is established to maintain the ability of the City to meet operational expenses during times of declared emergency or major catastrophe. 7 1. It is recognized that during a time of emergency, the City will need to expend more resources than normal operations dictate to meet the community's need. In addition to an increased level of expenditure, the tax base of the City may be impaired after a major catastrophic event. ii. The amount of the Catastrophic Reserve shall be a minimum of 8% of annual General Fund revenues, including Operating Transfers. iii. The Catastrophic Reserve shall be exclusive of all other reserve amounts. iv. Council may draw on the Catastrophic Reserve only upon declaration of an emergency pursuant to the Lodi Municipal Code. v. If the Catastrophic Reserve falls below 5% of annual General Fund revenue, including Operating Transfers, the City Manager shall prepare a plan within three months of Council approval of the Comprehensive Annual Financial Report (CAFR) to restore the reserve balance to the 5% level within 12 months and the 8% level within 24 months. vi. The Catastrophic Reserve is not intended for normal unanticipated expenditures and shall be funded before all other committed General Fund reserves. B. Economic Reserve i. An Economic Reserve is established within the General Fund. This reserve is established to maintain the City's economic viability and to meet seasonal cash flow needs. 1. It is recognized that economic cycles can cause significant fluctuations in the revenue streams of the City and the recovery from down cycles can be prolonged and affect service levels to the community dramatically. The Economic Reserve is intended to assist the City in maintaining service levels while revenues recover from a down economic cycle. ii. The amount of the Economic Reserve shall be a minimum of 8% of annual General Fund revenues, including Operating Transfers. iii. The Economic Reserve shall be exclusive of all other reserve amounts. iv. Council may draw on the Economic Reserve only upon adoption of a resolution of the City Council. 8 v. If the Economic Reserve falls below 5% of annual General Fund revenue, including Operating Transfers, the City Manager shall prepare a plan within three months of Council approval of the Comprehensive Annual Financial Report (CAFR) to restore the reserve balance to the 5% level within 12 months and the 8% level within 24 months. vi. The Economic Reserve is not intended to be used to encourage development through the expansion of infrastructure to undeveloped areas of the City and shall be funded once the General Fund Catastrophic Reserve is fully funded. 8. Special Revenue Fund Reserves Maintaining reserves in the City's Special Revenue Funds is also critical to the successful and stable short- and long-term operations of the City. Adequate reserves in the Special Revenue Funds, where appropriate, ensure that the City is able to carry out the purpose of the special revenue fund and ensure compliance with underlying laws and contractual provisions associated with the funds. Additionally, bond rating agencies often evaluate a City's General Fund financial resilience by looking at reserves that may be drawn from Special Revenue funds to help support General Fund activities. A. Library i. Since the Library is primarily funded by a General Fund transfer, there is no need to duplicate reserves associated with the transfer amount within the Library Fund. ii. Reserves within the Library Fund should be maintained at a minimum level of 16% of annual Non -General Fund Transfer revenue. 1. Any excess reserves not otherwise designated by Council may be returned to the General Fund annually for use as directed by Council. B. Parks, Recreation and Cultural Services (PRCS) i. Since a significant portion of PRCS revenue comes from a General Fund transfer, there is no need to duplicate reserves associated with the transfer amount within the PRCS fund. ii. Reserves within the PRCS Fund should be maintained at a minimum level of 16% of annual Non -General Fund Transfer revenue. 9 1. Any excess reserves not otherwise designated by Council may be returned to the General Fund annually for use as directed by Council. C. Community Development i. The Community Development Fund is primarily self-supporting from fee revenue associated with development activities. The activities and financing of this fund are subject to wide fluctuations based upon the state of the development economy. Many of the fees assessed are collected ahead of services being provided. In the event of an economic downturn, the fund will have collected fees for services that have not yet been provided. As such, it is prudent to carry a large reserve to recognize that the reserve represents services that have not yet been provided. ii. Reserves within the Community Development Fund should be maintained at a minimum level of 50% of annual operating expenses, including transfers. D. Vehicle Replacement i. Reserves in the Vehicle Replacement fund should be maintained equal to the accumulated depreciation of the vehicles in the fund. E. Information Technology Replacement i. Reserves in the Information Technology Replacement fund should be maintained equal to the accumulated depreciation of the equipment in the fund. F. Other Special Revenue Funds i. All reserve balances in the following funds are Restricted by the terms of the funds: 1. Streets 2. Transportation Development Act 3. Community Development Block Grant 4. Debt Service 5. Public Safety Special Revenue 10 6. General Fund Capital Outlay 7. Parks Capital Outlay 8. Vehicle and Equipment Replacement 9. Enterprise Fund Reserves Maintaining reserves in the City's Enterprise Funds is also critical to the successful and stable short- and long-term operations of the City. Adequate reserves in the Enterprise Funds ensures that the City is able to carry out the purpose of the fund and ensures compliance with underlying laws and contractual provisions associated with the funds. Among other metrics, bond rating agencies review compliance with reserve policies in determining credit ratings. A. Electric Utility i. The City Council separately adopts a reserve policy for the Electric Utility and reviews the components of the policy every three years. As part of the annual budget process, Council is apprised of the level of reserves desired under that policy. B. Water Utility i. The City Council has adopted a financial model for the Water Enterprise that incorporates a reserve target of 25% of Operating Expenses. ii. Additionally, all funds collected in relation to PCE/TCE rates or settlements are restricted to use solely for the mitigation and remediation of those pollutants. C. Wastewater Utility i. The City Council has adopted a financial model for the Wastewater Enterprise that incorporates a reserve target of 25% of Operating Expenses. D. Transit i. All reserve funds in the Transit Enterprise are restricted as to use solely for transit purposes. 11 10. Internal Service Fund Reserves Maintaining reserves in the City's Internal Service Funds demonstrates fiscal accountability and financial prudence. Adequate reserves in the Internal Service Funds ensure that the City has set aside sufficient funds to meet the future obligations it has committed to provide to its employees. Additionally, bond rating agencies review these funds and look favorably upon entities that are funding the long-term liabilities represented in the City's Internal Service Funds. A. Benefits Fund i. Other Post -Employment Benefits (OPEB) 1. Reserves equal to the annual pay-as-you-go expense should be held in reserve locally. 2. Additional funds may be held in a third -party trust. ii. Long Term Disability 1. The City is self-insured for a long-term disability program. Reserves equal to three times the annual expense should be held locally, iii. Pension Stabilization 1. Reserves should be set aside to amortize the unfunded pension liability over, at most, a 30 -year period. 2. Funds may be held locally or in a third -party trust. B. General Liability Insurance Fund i. Reserves equal to a minimum of three times the Self -Insured Retention level should be held locally. ii. Funds above the minimum reserve level may be retained in this fund as a means of mitigating future program cost increases, rebated to the paying funds or transferred to other funds at Council discretion. C. Workers Compensation Fund i. Reserves, at a minimum, equal to the 70% confidence level shown in the annual actuarial report should be held locally. 12 ii. Funds above the minimum reserve level may be retained in this fund as a means of mitigating future program cost increases, rebated to the paying funds or transferred to other funds at Council discretion. D. Fleet Maintenance Fund i. Reserves equal to a minimum of 16% of Operating Expenses shall be held in the Fleet Maintenance Fund. 11. Capital Improvement Plan The City is committed to ensuring that all of its assets are operated, maintained and replaced in a manner that is the most prudent method of maintaining the public stewardship of those assets. To that end, the City will prepare and update annually a Capital Improvement Plan (CIP) that encompasses those assets and looks out over a five year lifespan. The first year of the five year plan will be the current budget year. The Internal Services Department will be responsible for gathering the data for inclusion in the plan. A. CIP Projects Construction projects that are expected to cost $10,000 or more should be included in the CIP. Projects will be a combination of projects that repair, replace or enhance existing facilities, equipment or infrastructure and projects that expand or add to the City's existing fixed assets. Vehicles and equipment (rolling stock) are not to be included in the CIP. B. CIP Appropriations Approval of the CIP and the projects contained within it does not constitute appropriation of the funds necessary or designation of the funds necessary to complete the project. Annual appropriations for CIP costs will be included in the annual budget. Carryforward of funds on approved contracts will follow City year end procedures. C. Elements of the CIP Each project listed in the CIP will address the following items: a. project description b. project timeline c. anticipated funding sources 13 d. estimated expenditures e. revenues and expenditures will be reflected by fiscal year over the five-year timespan of the CIP f. estimated annual on-going operating and maintenance costs 12. Encumbrance Accounting Encumbrances represent commitments to contracts not yet performed and orders not yet filled. They are used to control expenditure commitments for the year and to enhance cash management. Encumbrances do not represent expenditures for a period, only a commitment to expend resources. As a contract is completed, the budgetary encumbrance control accounts are liquidated or reduced and the actual expenditure is recorded. A. Lapsing Appropriations a. General Fund — all encumbered funds, except those related to a fixed -asset purchase, lapse at the end of each fiscal year. b. Capital Projects — encumbered funds associated with construction contracts do not lapse. However, encumbered funds associated with staff costs on construction projects do lapse and should be re -appropriated each fiscal year. 13. Review and Update These policies will be in place for the fiscal year 2017/18 budget. These policies will be reviewed and updated every two years in odd numbered years in conjunction with the approval of the annual budget. The next review cycle will be in conjunction with the fiscal year 2019/20 budget. 14